President López Obrador said Friday that he will replace the current central bank governor with an economist who supports a “moral economy” — an economy in which the well-being of everyone is prioritized over the wealth of the few.
Speaking at his regular news conference, López Obrador said he won’t nominate current Bank of México Governor Alejandro Díaz de León for a second term after it concludes at the end of November.
López Obrador, a fierce critic of the neoliberal economic policies he says were implemented by successive governments during the 36 years preceding his arrival in the National Palace, said he would instead nominate an economist with “a lot of prestige” who is better attuned to Mexico’s social needs.
The new governor of the central bank (also known as Banxico), will be “an economist with a social dimension, one who is in favor of a moral economy,” the president told reporters.
López Obrador didn’t say who he had in mind for the job. His nominee would have to be ratified by the Senate, in which the ruling Morena party and its allies have a strong majority.
The president’s decision not to extend the governor’s term for another four years could open up “a period of uncertainty for the traditionally conservative monetary authority,” the news agency Bloomberg said.
It said the president’s confirmation that he won’t renew Díaz’s term was expected but nevertheless may cause uncertainty for investors until he names a successor. López Obrador has already appointed three members to the bank’s five-person board and now, “by saying that the next governor would be focused on social issues, the president suggests he wants to shift the approach of the bank’s leadership,” Bloomberg said.
López Obrador this week expressed dissatisfaction with a decision of the Banxico board not to turn over a foreign exchange surplus to the Finance Ministry.
On Thursday he directed his criticism at Díaz, charging that the governor has an affinity with members of the previous federal government, which did receive bank profits. He claimed that the central bank looks unfavorably upon his administration but conceded that its autonomy must be respected.
Gerardo Esquivel, a central bank board member appointed by López Obrador, said Banxico profits were needed to cover other expenses and denied that the decision not to transfer a surplus to the government was politically motivated.
While López Obrador said he respects the central bank’s autonomy, economist Enrique Quintana contended that it was nevertheless concerning that “one of the anchors of stability in Mexico” is being questioned by the president.
Writing in the newspaper El Financiero, Quintana said López Obrador has made “impeccable” and “unquestionable” appointments to the central bank board but suggested the president could now seek to appoint a governor who is open to accommodating his desire for the bank to serve his government ahead of the country.
“The issue is delicate because the financial stability that exists in Mexico is based on the certainty that an autonomous central bank offers,” he wrote.
Quintana wrote that López Obrador has shown himself to be pragmatic with regard to central bank appointments but added that it can’t be ruled out that the president’s ideological beliefs will win out and he will appoint a governor who is sympathetic to his views.
Carlos Capistran, a Bank of America economist, said López Obrador’s announcement implies that the central bank will likely tolerate more inflation in the months and years ahead.
It “gives support to the side of Banxico’s board that worries more about growth than inflation and anticipates a governor that also puts more weight on growth and less weight on inflation than Díaz de Leon, potentially much less weight to inflation,” Capistran said.
Quintana said that if Morena wins a two-thirds majority in the Chamber of Deputies, it could introduce constitutional reforms to decrease the central bank’s autonomy. Some members of the federal government see the bank as “a kind of temple of neoliberalism,” he wrote without naming any names.
“For the financial health of everyone, of the 126 million Mexicans, hopefully common sense prevails,” Quintana wrote.
Although Díaz de León hasn’t won the admiration of the president he is highly regarded in international financial circles. He was named central bank governor of the year in 2020 by the financial publication Central Banking. It was one of several international awards he has won since becoming governor.